Ok, let’s start with some background. What does market segmentation entail? Well, market segmentation involves dividing a total addressable market into smaller consumer groups with similar needs, characteristics, or behaviors in order to examine each smaller group's needs and wants. So by segmenting a market, you can effectively tailor your marketing mix to reach and engage specific consumer groups. Still with us? Nice. Now let’s dive a little deeper into the types and methodologies of segmentation.
5 types of market segmentation
There are so many ways to divide a market. And there are several factors that come into play in any given segmentation—including geographic, demographic, psychographic, behavioral, and firmographic factors. You may want to use one or more of these segmentation approaches, depending on your specific business goals and the nature of the market you’re targeting. Let’s go over them now.
Geographic segmentation divides a market based on locational boundaries such as country, region, state, city, or zip code. By segmenting the market geographically, you can better understand and meet the needs of your consumers in different areas.
This type of segmentation is helpful when you have offerings that vary in demand based on location-specific factors, such as climate, culture, or language. To put that into context, an apparel company may segment by region to account for climate differences, promoting winter jackets in colder areas and lighter jackets in warmer regions. This can lead to more effective marketing campaigns, better allocation of resources, and increased sales.
Geographic segmentation can also help you identify untapped markets in other locations, allowing you to expand your business.
Demographic segmentation divides a market based on demographic factors such as age, gender, income, education, occupation, or family status. By segmenting the market demographically, you can tailor your marketing efforts to the needs and preferences of different demographic groups.
This type of segmentation is helpful when you’re offering products or services that cater to specific demographic groups. For example, a skin care brand may segment by age to account for the unique skin care needs of younger or older customers.
By leveraging demographic data, you can build stronger customer relationships and drive growth.
Psychographic segmentation divides a market based on customers' lifestyles, personalities, attitudes, interests, or values. By segmenting your market psychographically, you can tailor your marketing efforts to the motivations and behaviors of different customer groups.
This type of segmentation can help you create and market personalized offers to customers. For example, a travel brand may segment by lifestyle to target adventure-seekers likely to book extreme sports tours while on vacation.
Psychographic segmentation helps you build stronger emotional connections with customers and increase brand loyalty.
Behavioral segmentation divides a market based on customers' behavior patterns, such as buying habits, usage rate, brand loyalty, and purchasing decision-making processes. This type of segmentation is helpful when you’re looking to target customers based on their actual shopping and purchase behavior rather than or in addition to demographic and psychographic traits.
Behavioral segmentation can help you create targeted marketing campaigns appealing to various customer journey phases. For example, your brand may target new customers with introductory promotions while targeting frequent buyers with a loyalty program.
Behavioral segmentation enables you to develop marketing strategies that drive customer engagement, satisfaction, and loyalty.
Firmographic segmentation divides a market based on characteristics of companies or organizations, such as industry, location, revenue, or the number of employees. This type of segmentation is helpful for business-to-business (B2B) efforts, or when you’re primarily selling products or services to other organizations rather than individual consumers.
By segmenting their market firmographically, you can appeal to different types of businesses based on their unique needs and challenges. A good example could be a software company targeting small businesses with affordable, easy-to-use solutions while targeting larger enterprises with more sophisticated, customizable products.
Firmographic segmentation can also help you identify new market opportunities or develop new products or services that cater to the needs of specific industries or business types.
Now let’s move on to talk about the different methods for segmenting. In the world of market segmentation, there are two primary methodologies: A Priori and Post-Hoc. A Priori research tends to be less costly, while Post-Hoc can be more elaborate and expensive. These methodologies, however, aren’t mutually exclusive—you can always opt for a hybrid approach, leveraging both. Ultimately, the best approach depends on the specific needs and goals of your business.
A Priori segmentation
A Priori segmentation groups market segments using preselected criteria, like preferred brand and quantity consumed, collected through methods like online panel tracking studies or random representative quota samples. Demographic and psychographic factors are then used to further describe each segment. Here, the goal is to understand the size of each segment and develop a profile based on those descriptors.
Post-Hoc segmentation, on the other hand, takes a derived approach to segment development by using cluster analysis to place respondents into homogenous groups based on relevant variables. This approach often considers the hierarchy of needs, motivations, attitudes, and behaviors, and clusters based upon variables at the attitudinal level or higher. By focusing on higher-level factors, which have greater explanatory power than behaviors alone, you can gain a deeper understanding of your customers' motivations and needs. The resulting clusters are then described using demographic and psychographic factors—same as in A Priori segmentation.
Looking to get started with segmentation?
If you’re looking to effectively conduct a segmentation study, it’s important to follow a strategic and data-driven approach. The first step is to identify your target market and the factors most relevant to your business, which can be achieved through market research, analyzing customer data, or using third-party data sources. Get creative in your approach to collecting and analyzing this data both quantitatively and qualitatively. For example, maybe consider collecting video responses as part of your segmentation survey.
Once the relevant factors have been identified, you can begin grouping customers into different segments using an A Priori, Post-Hoc, or hybrid approach.
Next, it’s a good idea to develop targeted marketing strategies tailored to each customer segment. This may involve creating different messaging, offers, and promotions for each segment, as well as using different marketing channels and tactics to reach them.
Finally, you should continuously monitor and evaluate the effectiveness of your segmentation strategies, using customer feedback and data analytics to refine and improve your segmentation approach over time.
In the end, we believe that by adopting a strategic and data-driven approach to segmentation, you can better understand their customers, create more effective marketing campaigns and drive business. Looking for more ways to captivate your audience? Look no further!
Editor's note: This post was originally published in 2018 but updated in 2023 for relevancy.